Regulators approve final QRM rule

October 21, 2014

WASHINGTON (10/22/14)--Federal regulators Tuesday approved a final qualified residential mortgage (QRM) rule, which requires investment banks to hold at least 5% of a loan's risk on their books when securitizing loans unless the loans meet the definition of a QRM.

The rule more closely aligns the definition of QRM with the Consumer Financial Protection Bureau's (CFPB) qualified mortgage (QM) definition than did the original proposal. The Credit Union National Association strongly advocated for a closer alignment.

"CUNA has advocated strongly for the important step of aligning the Qualified Residential Mortgage with the existing Qualified Mortgage definition," said Mary Dunn, CUNA's deputy general counsel and senior vice president. "Doing so encourages lenders to work with creditworthy borrowers to make home loans that will continue to drive the country and our economy forward."

Thomas Curry, Comptroller of the Currency, said the rule is an important milestone.

"The rule we are approving today will require lenders to retain some of the risk for the loans that go into securitized pools except for home mortgages that meet the standards necessary under the qualified residential mortgage, or QRM, exception," he said in announcing his agency's adoption of the definition.

Curry added, "Under this rule, QRM is equivalent to QM, that is, the qualified mortgage rule approved by the Consumer Financial Protection Bureau."

"Aligning the qualified residential mortgage standard with the existing qualified mortgage definition also means more clarity for lenders and encourages safe and sound lending to creditworthy borrowers," he said.

CUNA supported aligning the definition of a QRM more closely with the definition of a QM in commenting on the proposal last year. However, CUNA does not support a 43% debt-to-income ratio a borrower must meet for a QM.

The new rule also states that regulators will review the QRM standards in four years.

"By then, we should have enough experience with the standards to know whether they strike the right balance between long-term financial stability and the home-financing needs of American families, and we can adjust them if necessary," Curry said.

The joint rule was proposed by the Federal Reserve Board, Federal Deposit Insurance Corp., U.S. Department of Housing and Urban Development, FHFA, Office of the Comptroller of the Currency and the Securities and Exchange Commission.

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